KUALA LUMPUR, Malaysia, Sep 11 (IPS) – Marginalized and economically dominated by the Global North, developing countries must urgently work together to better fight for their shared interests in achieving world peace and sustainable development.
Since the 2008 global financial crisis (GFC), successive governments – led by Obama, Trump and Biden – have all tried to support full employment in the US. However, real wages and working conditions for many have suffered.
Unique among monetary authorities, the US Fed’s mandate includes ensuring full employment. However, despite the US-Soviet rivalry of the first Cold War, Washington no longer wants a growing global economy.
This has affected US relations with NATO and other alliances, many of which have been hit by the global economic downturn since the GFC. Instead of ensuring global stability, the ‘unconventional monetary policies’ that followed the Great Depression created more money.
The interest rate increases slightly with growth
Since the beginning of 2022, the US has raised interest rates unnecessarily. Stanley Fischer, later Deputy Managing Director of the IMF and Vice Chairman of the US Federal Reserve Bank, and his colleague Rudiger Dornbusch found double-digit inflation acceptable, and highly desirable for growth.
Before the change in the 2 percent inflation target, other mainstream economists reached similar conclusions in the late 20th century. Since then, the US Fed and other central banks in the West have been fixed on inflation targeting, which has no theoretical or empirical reasons.
Fiscal austerity policies have been consistent with these fiscal priorities, including macroeconomic policy pressures. Many governments are ‘persuaded’ that monetary policy is too important to be left to finance ministers.
Instead, independent fiscal boards set acceptable levels of public debt and deficits. Therefore, macroeconomic policies create instability everywhere.
While Europe has largely adopted such policies, Japan has yet to subscribe to them. However, this new Western policy doctrine includes economic theory and policy knowledge when, in fact, it does not support it.
The increase in interest rates by the US Fed from the beginning of 2022 has caused a flight of money from developing economies, leaving the poorest countries in the worst position. Previous financial inflows into low-income countries have since left rapidly.
The New Deal of the Cold War
The new Cold War worsened the economic situation, putting a lot of pressure on the world economy. Meanwhile, geopolitical considerations increasingly overshadow development and other priorities.
The growing imposition of illegal sanctions has reduced investment and technology flows to the Global South. Meanwhile, the use of weapons of economic policy is rapidly spreading and becoming mainstream.
After the invasion of Iraq, the US, NATO and others generally do not want the UN Security Council to approve sanctions. Therefore, their sanctions are against the UN Charter and international law. However, such illegal sanctions have been imposed with impunity.
With most of Europe now in NATO, the OECD, G7 and other US-led Western institutions have increasingly undermined the UN-led alliance, which they still dominate but no longer control.
Interfering provisions of international law are ignored or invoked only when they are useful. The first Cold War ended in a minute, but this did not stop new challenges to US power, mostly because of its claim to authority.
Sanctions like these added to other supply-side disruptions, such as the pandemic, and exacerbated recent deflationary and inflationary pressures.
In response, the West raised interest rates in concert, exacerbating the ongoing economic slowdown by reducing demand without effectively addressing supply-side inflation.
Internationally agreed sustainable development and climate goals are not being achieved. Poverty, inequality and vulnerability have worsened, especially for the most deprived and vulnerable.
Limited Southern options
Because of its diversity, the Global South faces various challenges. The problems faced by the poorest low-income countries are very different from those in East Asia, where foreign exchange constraints are no small problem.
IMF Deputy Managing Director Gita Gopinath argued that developing countries should not join a new Cold War.
This suggests that even those who walk the corridors of power in Washington recognize that a new Cold War is exacerbating the long-standing instability since the 2008 global financial crisis.
Josep Borrell – the second most important official of the European Commission, in charge of international affairs – sees Europe as a garden facing an attack from the surrounding forest. To defend itself, he wants Europe to attack the forest first.
Meanwhile, many – including the foreign ministers of leading non-aligned nations – say disarmament is irrelevant after the end of the first Cold War.
Inconsistencies of the old type – a la Bandung in 1955 and Belgrade in 1961 – may not work well, but new inconsistencies are needed in our times. Today’s disagreements must include strong commitments to sustainable development and peace.
The origins of the BRICS are very diverse, with the exception of developing countries that are less economically developed. Although it does not represent the Global South, it is of immediate importance.
Meanwhile, the Non-Aligned Movement (NAM) remains marginalized. The Global South urgently needs to act without the limited options available to it.
IPS UN Bureau
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© Inter Press Service (2024) — All Rights ReservedOriginal source: Inter Press Service
